Paul Moore, former head group regulatory risk at HBOS, has cast doubt on the rigour of the Financial Services Authority’s investigation into the collapse of the Edinburgh-based bank, on the grounds that critical witnesses have not been approached for evidence.
Moore said he suspects the FSA’s HBOS investigation will be an attempted whitewash that will fail to impose disciplinary action on the directors who led the bank over a cliff.
Moore said: “You cannot expect a conflicted and disgraced regulator, or a conflicted and disgraced accountancy firm, to produce a proper inquiry into a disgraced bank.”
The FSA is reported to have outsourced the HBOS inquiry to accountancy firm Ernst & Young. Yet E&Y is being prosecuted in the US over the alleged cooking of the books of collapsed investment bank Lehman Brothers and its audit of collapsed Dublin-based bank Anglo-Irish Bank is being investigated by Ireland’s accountancy institute.
FSA’s outsourcing of probes to ‘Big Four’ accountancy firms under scrutiny
Moore said: “Firms like PwC and E&Y are inherently conflicted. They don’t want to find against anyone, either in a bank or in the regulator, for fear of jeopardising future fees.”
Moore said that the FSA was an inappropriate body to handle investigations into the banking crisis. “The FSA are the rule-maker, supervisor, investigator, prosecutor and to a large extent the tribunal as well. Were they to take action against directors of RBS or HBOS, they would be exposing their own failures.
“The overriding inference is that they failed miserably in the lead up to the banking crisis. If investigations were to be done properly, they would severely criticise not only firms, but the FSA as well.”
Moore caused a sensation at the Treasury committee in February 2009 when he highlighted internal abuses at the bank, which collapsed into the arms of Lloyds TSB and had to be bailed out by the taxpayer. The day after Moore’s dramatic intervention, prime minister Gordon Brown told the Commons that ex-HBOS chief executive Sir James Crosby had resigned as the FSA’s deputy chair in order “to contest Mr Moore’s serious allegations”.
Moore is surprised that, 23 months later, Crosby has still not sought to disprove Moore’s claims.
After his intervention in the Treasury committee’s banking inquiry, Moore said he fully expected “a proper judicial enquiry which would have brought out all the key public policy points, including those relating to the failures of the HBOS board , its auditors KPMG and the FSA. But that never happened.”
He said he will be lobbying Andrew Tyrie MP, who took over as chairman of the Treasury committee in June, for such a no-holds-barred judge-led investigation. “Without such an inquiry, the public will never know what really happened, no one will be held to account, public policy won’t be rebuilt and bankers will continue to be paid bonuses that simply do not reflect what they are worth.”
“The original Treasury Select Committee review was never forensic enough, even though it did blame management, non-executives and the regulator,” said Moore, who added that without properly objective inquiries “the public will never know what really happened, no one will be held to account, public policy won’t be rebuilt properly and bankers will continue to be paid bonuses that don’t reflect what they are worth.”
The FSA recently exonerated the board of RBS, triggering an outcry when it said its report into RBS, which was outsourced to “Big Four” accountancy firm PWC, would not be made public. FSA chairman Lord Turner later caved in to political and public pressure and said a sanitised version would be published in March.
In his evidence to the Treasury Committee in February 2009, Moore highlighted a “total failure of all key aspects of governance [at the bank]. In my view and from my personal experience at HBOS, all the other specific failures stem from this one primary cause.”
Neither the FSA nor Lloyds Banking Group would comment.
An edited version of this article was published in the Sunday Herald on 16 January 2011